China’s government is quietly urging domestic companies to opt for locally-made artificial intelligence chips over those produced by Nvidia Corp., as part of a broader effort to boost its semiconductor industry and reduce reliance on foreign technology. The move is seen as a strategic response to US sanctions, which have targeted China’s access to advanced AI chips.
Regulators in Beijing have been issuing informal guidance to companies, discouraging them from purchasing Nvidia’s H20 chips, which are widely used in AI development and deployment. Instead, they are promoting the use of chips made by domestic companies such as Cambricon Technologies Corp. and Huawei Technologies Co.
The policy is designed to help Chinese AI chipmakers gain market share and prepare local tech companies for potential future US restrictions. Earlier this year, Beijing also encouraged local electric-vehicle makers to source more components from domestic suppliers, as part of a broader push for self-sufficiency in critical technologies.
Nvidia’s shares fell following the news, extending an earlier decline. The company has modified its chips to comply with US Commerce Department regulations, but Beijing’s move is seen as a blow to its sales in China.
Chinese officials are walking a fine line, seeking to promote domestic AI development while avoiding any moves that could be seen as escalating tensions with the US. They are also keen to ensure that local companies have access to the best technology possible, even if that means importing some foreign semiconductors.
Nvidia’s CEO Jensen Huang said the company is committed to complying with US regulations while competing in the Chinese market. “We have a lot of customers there that depend on us, and we’ll do our best to support them,” he said.
Despite trade restrictions, China remains a key market for Nvidia, accounting for 12% of its revenue in the July quarter. The company’s data center revenue in China grew sequentially in Q2, driven by demand for its processors.
However, Chinese chip designers and manufacturers are working to introduce alternatives to Nvidia’s chips, backed by billions of dollars in government subsidies. While local AI chips still lag behind Nvidia’s offerings, China’s AI sector is rapidly expanding, with companies like ByteDance and Alibaba investing heavily in the field.
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